October 25, 2023
The Thai Stock Exchange index (SET) has plummeted significantly, marking a 15% decline compared to global indices. In contrast, Japan’s Nikkei index has shown a robust performance, gaining 20%.
Global stock markets continue to face pressure due to a 10-year bond yield increase, coupled with expectations of another interest rate hike. The ongoing situation in the Middle East remains a concern, as worries increase about a potential escalation.
These negative factors have led Thailand’s SET index to experience a sharp decline. Elsewhere, the unique financial policies of Japan, including remarkably loose monetary policies, have shielded its stock market from the impact felt in other countries.
Noting that Thailand’s stock market has shown the most favourable operational results since the beginning of the year, Nuttachart Mekmasin, assistant managing director of Trinity Securities, said that while many countries have adopted tight monetary policy modes for 1-2 years, Japan stands out as the only country employing an extremely relaxed monetary policy, even with negative interest rates.
Conversely, markets experiencing significant negative impacts can all be categorised as being within the emerging markets in Asia. The US has trended towards interest rate hikes, creating higher interest rate differentials. Consequently, the dollar has strengthened, affecting emerging markets.
Several domestic factors have also contributed to Thailand’s market decline. Political uncertainties, especially with the formation of a new government in September, have delayed various policies, creating market hesitancy. Confidence has diminished, leading to reduced foreign investments.
Additionally, although Thailand’s stock market appeared strong compared to others, leading to a higher valuation and relatively high price/earnings (P/E) ratio, this, coupled with the fact that foreign investors have been selling, has adversely affected the Thai stock market.
Furthermore, Thailand’s market has been impacted by the country’s policy of raising interest rates. While many Asian countries have held off rate hikes since the beginning of the year, Thailand started tightening in the 3rd quarter. This policy tightening has constrained liquidity within the country, causing money to flow out. As foreign money exits and domestic liquidity fails to support the market, Thai stocks have slipped below support levels, making Thailand the worst underperformer in the region this year, Nuttachart said.
The situation is contingent on the upcoming phase of interest rate adjustments. It remains uncertain whether rates will continue to rise or stabilise in the final quarter of the year. As long as there is ambiguity, predicting foreign investors’ return will remain challenging, Waiting for clarity on when the US Federal Reserve will cease rate adjustments will determine the flow of money back into emerging markets, including the Asian market, he added.
Nevertheless, in the fourth quarter of this year, or early next year, there might be developments stimulated by government initiatives to aid the economy. This could involve adjustments in economic forecasts and corporate earnings estimates.
Investors are also looking at various tax collection methods. If there is clarity on the tax collection policies for the next year, it could indirectly bolster domestic flexibility, allowing funds to flow back into the country and, ultimately, back into the Thai stock market.